Kingfisher confirms CEO exit in 'tough' U.K. market

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Published: Nov 1, 2007 6:35 a.m. ET

Last Updated: Nov 1, 2007 6:50 a.m. ET

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By Jessica Hodgson

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Kingfisher PLC
KGFHY, +0.46%
Europe's biggest home improvement retailer, Thursday said Chief Executive Gerry Murphy would stand down in February, adding in a brief trading update that the U.K. market was still "tough."

Kingfisher, which owns the B&Q home improvements chain in the U.K. and Castorama in France, said that, while it saw "positive" full year performance from its international businesses, the U.K. retail environment remained challenging.

Kingfisher, which operates in 10 countries across Europe and Asia, said at its September half-year results that a combination of rising interest rates and a poor U.K. summer would weigh on second-half trading. More than half of its sales come from outside the U.K.

Kingfisher shares initially rallied Thursday, opening up 3.3%. But by 0926 GMT, they were down 2 pence, or 1% at 195 pence amid a lower overall London market, amid fears of an imminent dividend cut.

While some analysts said a change of management could spark bid interest, others noted that there weren't any obvious bidders in the wings. Meanwhile, concerns were raised that Kingfisher may further cut its dividend.

Nick Bubb, of Pali International, said he questioned "PR spin" that Murphy's departure was part of Kingfisher's internal succession plan, and pointed to evidence of poor third quarter trading.

Bubb and analysts at Credit Suisse agreed that Ian Cheshire, CEO of Kingfisher unit B&Q, was the "obvious successor," although both said the company would likely cast around for alternatives.

Although Kingfisher is now theoretically "vulnerable," Bubb said, he believes previously mooted bidders such as U.S. retailers Home Depot Inc.
HD, +0.65%
and Lowes Cos.
LOW, -0.73%
are unlikely to approach the company now.

Bubb and Citigroup agreed that Murphy's departure could prefigure a dividend cut.

Citigroup, which rates Kingfisher hold, noted that the company "has effectively been paying its dividend out of debt or property disposals," for some years.

Nevertheless, Landsbanki, which rates the shares hold, said it thought the replacement of Murphy would be "well received by the market," noting that a new CEO was likely to launch a full review of the business.

Chairman Peter Jackson, commenting on Murphy's succession, said the company would instigate a "rigorous selection process," to replace him.

"The board believes there is strong internal succession for the role, but we will take enough time for a thorough external search," he said in a statement.

Credit Suisse, in research published Thursday, said Murphy's departure would likely prompt interested potential bidders to look at Kingfisher again.

According to press reports, it has previously been in the sights of Home Depot and Lowes, along with some private equity firms.

After a profits warning in 2005 and declines in same-store sales, B&Q has been revamping its U.K. stores to target female shoppers. But, despite an improvement in trading at some larger stores, a sustained recovery has failed to materialize.

Kingfisher shares have lost almost a third of their value since early summer, amid concerns about poor weather and the impact of rising interest rates. An unusually wet summer in the U.K., which resulted in flooding in many parts of the country, kept shoppers away from Kingfisher stores along with those of rivals such as Travis Perkins PLC (TPK.LN) and Home Retail Group PLC's (HOME.LN) Homebase.

Murphy, who has been CEO of Kingfisher since 2003, was previously CEO of Carlton Communications, one of the two companies which merged to form what is now ITV PLC (ITV.LN). He has previously worked for global logistics firm Exel PLC and held senior positions at drinks group Grand Metropolitan, now known as Diageo PLC.
DEO, +1.06%

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